It's easy to imagine that there will be a gold rush within the next few years because the economic and political indicators are all aligned. You don't have to be a Nostradamus to predict the predictable.
But it is more difficult to imagine the mania that might ensue.
The psychology of a single individual is a very complicated thing. After all, "unique" is the one word that best describes any person. Mass psychology is more complex, given the infinite number of possible combinations of behavioral actions. Yet mass psychology can be simple to understand when a "herd mentality" takes hold -- when simple emotions like greed, fear, and envy are predictable indicators of investor, media, and consumer behavior.
The gold mania is coming. We have seen it before, as recently as the late 1970s, when gold prices skyrocketed and news coverage about gold soared. Yet this time crazier craziness is predictable not only because the conditions for gold are much riper now - with mind-boggling financial, political, and military problems undermining paper currencies and assets - but because the media that will cover the mania have multiplied in number and in the intensity in which they fan flames of fear. They will drive the herd hard.
That is why the next rush to gold could resemble the dotcom phenomenon. A combination of scary events, mass media and mass marketing could quickly drive gold up, turning it into a bubble the media would then pop.
We in the gold community will profit from the new rush to gold, but we should consider, in advance of the rush, the lessons of the dotcom bubble. We don't just want a gold strike; we want gold properly understood, appreciated, and restored as true, safe money.
Lesson #1: Stay real. No matter how speculative a sector may get, value comes from what is real, not merely perceived or promoted. Dotcoms got their value from hype, slick advertising, fraudulent accounting, pie-in-the-sky greed... By contrast, gold has intrinsic, enduring value. It is an asset, in and of itself, whether in jewelry, coins, collectibles, or as a universal currency. We need to continue to make the case for gold as a precious, safe, stable investment that is also a kind of insurance. Owning gold is money in the bank even when you can't trust banks, or your own government treasury.
Lesson #2: Stay honest. Dotcoms promised exponential growth for the long term. They threw out the standard models of gradual, intelligent growth and promised the undeliverable: to grow by leaps and bounds until they'd dominate a market, if not the world. Gold is precious because it is limited. We need people to realize that there's a relatively small gold supply in the world and, at the current rate of exploration and mining, it's not going to keep pace with demand. We want to be realistic and accurate in forecasting the future of gold. That also includes being honest in preparing novice investors for the reality that prices and stocks rarely go up in a straight trajectory; there are down days, and down weeks, even during up years.
Lesson #3: Stay diversified. Dotcom mania turned people greedy, and many made the mistake of betting everything on Internet and tech stocks. Some of the companies sound laughable now - Pets.com, Kozmo.com, Flooz.com -- but very nice people lost fortunes when the bubble burst. Gold has been a safe, traditional hedge against such financial meltdowns. Unlike dotcoms that went out of business and took all shareholders down with them, gold retains value even during the down or stagnant years. Nonetheless, even if you decide to make a total investment in gold, it's wise to diversify your gold portfolio. For over 25 years, I've been invested in exploration, junior and major gold companies, with a portfolio of shares, LEAPS, and warrants of over 25 mining companies around the world. And whenever I advise investors, I stress the need for diversification. Preaching diversification will help us keep our credibility with the media, as well as with investors.
Lesson #4: Stay alert. The tragedy of the dotcom mania was that the vast majority of people got in too late, and stayed too long. Even early investors never had a chance to get in on lucrative IPOs, and didn't have the sense to get out when the gettin' was good. This is a great time to be invested in gold, and when the rush is on it'll be even better. But if the rush to gold becomes truly maniacal, if the public demand for gold reaches an unsustainable fever pitch, and if the mass media turns from circus promoter to bubble-buster, look out. Even a secular bull market like the one we've entered eventually comes to an end. It should be a long while from now, but not if the mania is over the top and over the cliff. So, remember to keep an eye on the exit.
Lesson #5: Stay skeptical. Many people invested in dotcom firms because they heard a hot tip. I remember vividly how every party or business lunch turned into feverish gossip about which dotcom was "the next Microsoft." Taxi drivers, teachers and plumbers insisted on giving me the inside scoop about why an unknown dotcom that hadn't yet developed a product or service was headed for the Internet Hall of Fame. I was fascinated by, but skeptical about, the dotcom mania, and instead continued investing in gold. Today, investing in gold is not just a sound, but a shrewd, investment. But investing wisely in gold requires in-depth research and careful evaluation. We need to continue to help investors find the legitimate gold mining and explorations companies, the ones that have a good track record and huge potential. And we should encourage people to monitor their investments frequently. Knowledge is power, and we want to empower people to secure their own financial futures so they don't suffer another dotcom type disaster.
I believe we in the gold community can, and will, remember the lessons of the dotcom fiasco. I believe we will be true to the gold standard of investing: stay real, stay honest, stay diversified, stay alert, and stay skeptical.
